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Now and always, the relevance of the Taylor rule in Europe
Author(s) -
Caputo Rodrigo,
Díaz Agustín
Publication year - 2018
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1601
Subject(s) - taylor rule , economics , inflation (cosmology) , sign (mathematics) , monetary policy , relevance (law) , central bank , inflation targeting , output gap , macroeconomics , monetary economics , interest rate , keynesian economics , political science , physics , mathematics , theoretical physics , law , mathematical analysis
Abstract We find that, after the adoption of the euro, the European Central Bank has followed a forward‐looking Taylor rule. This rule is such that nominal as well as real short‐term interest rates increase in response to higher expected inflation or decline in output. Our findings show that the European Central Bank policy responses are of the same magnitude and sign as the ones prevailing in the pre‐euro era for Germany, France, and Italy. We conclude that, before and after the euro, central banks in Europe have adopted a proactive stance towards controlling inflation.